LOS Epson produces color cartridges for inkjet printers. Suppose cartridges are sold to mail-order distributors for $4.80 each and that manufacturing and other costs are as follows: Variable Costs per Unit Direct materials. Fixed Costs per Month Direct labor..... Factory overhead... Distribution.. $2.00 Factory overhead. 0.20 Selling and administrative.. $15,000 5,000 0.25 Total. $20,000 0.05 Total.. $2.50 The variable distribution costs are for transportation to mail-order distributors. Also assume the current monthly production and sales volume is 15,000 and monthly capacity is 20,000 units. Required Determine the effect of the following situation on monthly profits. A Mexican manufacturer has offered a one-year contract to supply ink for the cartridges at a cost of $1.00 per unit. If Epson accepts the offer, it will be able to reduce variable manufacturing costs by 40% and rent some of its factory space to another company for $1,000.00 per month.